Corporate Governance, CEO Reputation and Value Relevance

ABSTRACT
This study examines the impact of corporate governance and CEO reputation on value relevance.
This study also examines whether CEO reputation moderates the influence of corporate
governance on value relevance. The object of this research are banks listed on the Indonesia
Stock Exchange between 2016 and 2019. The purposive sampling method is used to select the
research sample. SmartPLS program was used to analyze the data in this study. The results of
this study show that a large board size can maximize the value relevance of Indonesian banks.
These findings are very helpful for management to maximize value relevance by acquiring more
directors on the board. However, when acquiring firm CEOs, management does not need to
consider the CEO's reputation because it will not maximize the value relevance of the firm. This
article provides a new insight into corporate governance research on how CEO reputation
moderates the impact of corporate governance on value relevance.

JEL Classification: G11, G31, M14

Keywords: Corporate Governance, CEO reputation, Value relevance.
 INTRODUCTION
Corporate governance, a term that in the last decade or two did not mean much except to a
handful of academics and shareholders, has become a major topic of discussion in corporate
boardrooms, academic meetings, and various events responsible for the increased attention and
interest in corporate governance (Claessens, 2006). During the 1998 financial crisis in Russia,
Asia and Brazil, the behavior of the corporate sector had an impact on the economy. Deficiencies
in corporate governance threatened global financial stability, after which confidence in
corporations was weakened due to corporate governance scandals in Europe and the United
States that triggered the largest bankruptcy in history. These events not only raise the profile of
the term corporate governance, but also make researchers, firms, and policymakers realize the
long-term consequences of weak corporate governance systems (Claessens & Yurtoglu, 2013).
After the monetary crisis that occurred in Indonesia in 1998 and 1997, the Indonesian
government made efforts to improve corporate governance and the quality of financial reporting
in Indonesia. One of the government's efforts to achieve this was the issuance of regulations on
reporting and disclosure by BAPEPAM in 2002 (Siagian et al., 2013). One of the most important
functions of corporate governance is to ensure the quality of accounting information by
enforcing compliance with appropriate standards (de Almeida et al., 2009). Previous research has
found that the market price of companies that comply with corporate governance is higher than
those that do not (Alfraih et al., 2015).
Corporate governance is defined as something that affects corporate processes, including those
that appoint controllers and regulators, including the production and sale of goods and services
(Turnbull, 1997). The quality of the corporate governance framework affects not only the
external financing of the firm, but also the cost of capital and the value of the firm; outsiders tend
to be reluctant to provide financing and demand high returns when they feel uncertain about the
return (Claessens & Yurtoglu, 2013). The positive externalities of corporate governance cause
policymakers to explore the idea of enforcing corporate governance on a mandatory or voluntary
basis because some corporate governance disclosures can increase firm value (Ararat &
Yurtoglu, 2016).
In addition, accounting figures are defined as relevant if they have a predictable relationship with
the market value of equity (Barth et al., 2001). Relevant is one of the four qualitative
characteristics that financial statements must have. To be relevant, accounting information must
be able to make a difference in a decision (Kieso et al., 2014). The importance of financial
reports as a means of communicating the state of the company with shareholders and the public,
relevant issues are one of the important objects worth exploring, the relevant value of accounting
information has become the ability of financial data to summarize the enterprise value or become
reflective information that affects the stock market (Fiador, 2013). The quality of a financial
report can be measured by the company's stock price (Omokhudu & Ibadin, 2015). In the
literature review, many examine the direct effect of corporate governance on the relevant value
of the company (Almari, 2017; Almujamed & Alfraih, 2020; Fiador, 2013), previous researchers
found mixed and weak results, the relationship between corporate governance and value.
Relevant companies can be influenced by several factors that have been forgotten by previous
research.
On the other hand, CEOs tend to be the strongest members of the corporate elite because of their
legitimate hierarchical status and commitment to the organization (Brown & Sarma, 2007).
CEOs tend to be primarily committed to the status quo, establishing the correctness of current
strategies and persistence in certain leadership actions. In the organizational realm, the CEO's
commitment to the organization is viewed as a moral imperative that demonstrates the strength
of his or her identification and commitment to an organization (Yucel et al., 2014). Kitchen
(2003); Murray & White (2005) consider the CEO to be the main person responsible for
reputation management. CEOs are the human force behind the company's actions and results
(Love et al., 2017). Recent studies have shown that positive CEO reputation can influence
stakeholders' perceptions about the organization (Weng & Chen, 2017).
This study is motivated by the theory put forward by (Pfeffer & Salancik, 1979) namely the
resource dependence theory, which states that companies depend on the external environment for
their survival and the CEO's personal reputation is an indication of the environment outside the
company. The existing literature review focuses on the research on the relationship between
corporate governance and CEO reputation (Ljubojevic, C.; Ljubojeví, 2008), on the other hand,
many also investigate the relationship between CEO reputation and relevant value of the firm
(Nelson, 2005; Weng & Chen, 2017), can the relationship between corporate governance and
relevant value of the firm be enhanced by CEO reputation? This question has not yet been
discussed in the literature. Therefore, this study aims to contribute to the empirical literature on
value relevance by examining the extent to which accounting information is related to corporate
governance and the influence of CEO reputation on the relationship between corporate
governance and relevance value of accounting information in Indonesia.
REVIEW OF LITERATURE
Relevance is one of the two fundamental qualities that make accounting information useful for
decision making. Relevance has three components, namely predictive value, confirmatory value
and materiality. To be relevant, accounting information must be able to make a difference in
decisions (Ikatan Akuntan Indonesia (IAI), 2018). Relevant value can also be defined as the
ability of accounting information to explain the value of the company (Kargin, 2013).
Accounting information can be said to be relevant if it has a relationship with stock market prices
(Barth et al., 2001). The main objective of relevance research is to investigate whether the
financial statements prepared by the company are of good quality and whether they provide
valuable accounting information for decision making by their users (Alfaraih & Alanezi, 2011).
The quality of accounting information can be gaged from the share price of a company
(Omokhudu & Ibadin, 2015). Meanwhile, one of the functions of corporate governance is to
ensure the quality of accounting information (Fiador, 2013). According to Chen et al., (2009),
institutional investors from around the world are willing to pay a premium price for shares of
companies with good corporate governance practices.
Corporate governance refers to the mechanism by which a company's stakeholders exercise
control over insiders and management so that their interests are protected; stakeholders here
include capital holders, creditors and others who provide capital (John & Senbet, 1998). The
definition of corporate governance is very broad and varied and tends to fall into two categories.
The first category is a definition that concerns corporate governance itself with a set of
behaviors, namely the actual behavior of the company as measured by its performance, financial
structure, growth, efficiency and treatment of shareholders and other stakeholders, the second
category concerns the normative framework, namely the rules that govern its operation.
Company (Claessens & Yurtoglu, 2013).
Many studies aim to investigate the direct relationship between corporate governance and the
relevant value of the firm (Alfraih et al., 2015; Almujamed & Alfraih, 2020; Fiador, 2013;
Tshipa et al., 2018). However, they do not consider the personal attributes of key decision
makers such as CEOs who are given the responsibility of formulating corporate strategy
(Waldman et al., 2006). The personal attribute of a key decision maker such as a CEO is the
CEO's personal reputation.
Several authors in the academic and business community have considered the Chief Executive
Officer (CEO) as the main person responsible for reputation management (Kitchen, 2003;
Murray & White, 2005). The CEO becomes the "face and voice of the company" and emerges as
the human force behind the company's actions and results (Love et al., 2017). Recent studies
have shown that a positive CEO reputation can influence stakeholders' perceptions of the
organization (Weng & Chen, 2017). Thus, the authors consider CEO reputation as a potential
moderating variable to strengthen the link between corporate governance and relevant firm
value. This study is based on three basic theories of corporate governance, namely agency
theory, stewardship theory, and resource dependency theory.
Research based on agency theory mostly focuses on the relationship between board structure,
control over managerial behavior, and strategic decision making (Hafsi & Turgut, 2013). Agency
theorists use the term corporate governance to question the role of agents (managers) in fulfilling
part of their contractual agreements with principals (investors). The fundamental view held by
agency theorists of corporate governance is that managers have a self-interest and may not act to
maximize shareholder returns unless adequate internal governance structures and controls (to
monitor costs) are in place to protect shareholder interests (Jensen & Meckling, 1976). Rebeiz
(2015) describes the monitoring mechanism as an internal corporate governance structure.
Corporate governance under the stewardship model is based on the logic that managers work
conscientiously to maximize shareholder returns while being accountable for the use of corporate
assets (Donaldson, 1990). Therefore, this view leads to the assumption that managerial
performance is not necessarily influenced by self-interest, but rather by structural governance
constraints that impede the effectiveness of actions (Davis et al., 1997). Accountability theory
seeks to emphasize the importance of combining the roles of the chief executive (CEO) and the
chairman of the board of directors to achieve corporate financial performance.
Firms are interdependent to access the value of capital, according to Hung (1998). According to
resource dependency theory, businesses are interconnected and reliant on their surroundings for
survival. A board of directors, according to Pfeffer (1972), is a critical connection between the
firm and the outside world. The capacity of the board to execute these tasks is dependent on the
director's relationships with other businesses (Shropshire, 2010). There is a director's connection
if a director also serves on another board. As a result, Hung (1998) claims that there are linkage
advantages for directors, namely that they can increase firm value.
Due to the lack of definitive evidence on the effect of board size on firm valuation, researchers,
regulators, and market participants have centered their attention on the topic of board size as a
corporate governance tool (Johl et al., 2015). Many studies have been performed on the
relationship between board size and relevant value, including Tshipa et al., (2018), who used
board size, CEO duality, board activities, changes in board roles, board independence, presence
of a board committee, and board gender to investigate the impact of corporate governance on the
relevance value of accounting information in South Africa. The findings show that board size
and independence have a substantial positive impact on the firm's related value, while CEO
duality, board operation, changes in board roles, board committee, and board gender diversity
have no impact. These findings indicate that a broader board brings a greater diversity of skills
and experience, which enhances results. In theory, a larger board is more efficient than a smaller
one because there is a higher probability of board interdependence when there are several boards,
resulting in external capital that can produce positive returns for the company.
Tulung & Ramdani (2018) in their study investigated the relationship between board
independence, board size and bank performance in Indonesia from 2010 to 2014 and the results
showed that there was a significant positive relationship between board independence and board
size and bank performance. These results are based on the assumption that board size increases
the level of supervision, which improves firm performance. Krismiaji & Kusumadewi (2019)
empirically investigated the influence of board of directors characteristics, voluntary disclosure
on the relevant value of companies listed on the Indonesian Stock Exchange. Board
independence, board size, and voluntary disclosure index were used as independent variables.
The results show that voluntary disclosure, board size and independence have a significant
positive effect on the relevant value. The results are based on the assumption that a large size of
the board of directors helps to guide and advise the strategic decisions of the company and plays
an important role in creating a corporate identity that increases the relevant value of the
company.
Krismiaji & Surifah (2020) investigated the effect of corporate governance and compliance level
of IFRS disclosures in financial reports on the relevant value of companies listed on the
Indonesia Stock Exchange from 2013 to 2017. The independent variables used are board
independence, board size and audit committee independence, audit committee size and
management ownership, and disclosure compliance index. The results show that board size, audit
committee size, audit committee independence, and disclosure compliance index have a positive
effect on the relevant value of the firm, while management ownership has a negative effect on
the relevant value of the firm. Having many directors on the board has a positive effect on the
relevant value of a company because it is believed that many directors can strengthen the
interests of shareholders as they have a broader range of skills, experience and expertise to
improve the company's strategy. On the other hand, Almujamed & Alfraih (2020) investigated
how board characteristics affect the relevant value of the firm with the independent variable
board size, board independence, duality. It proves that board size has a positive effect on the
relevant value of the firm in Kuwait, while the variables of duality and board independence are
not significant. This is because a large board of directors is more likely to have more knowledge,
skills and experience than a smaller one. From the statement above, we concluded the hypothesis
as below:
H1 : Board size has significant positive impact on value relevance
There are several theoretical and analytical controversies in the corporate governance literature
regarding the efficacy of the non-executive board system (Ramdani & Witteloostuijn, 2010). The
agency's hypothesis, on the other hand, contends that having a higher proportion of independent
directors would improve company efficiency. This theory suggests that managers are egotistical,
opportunistic, and greedy and that effective board oversight is the secret to ensuring that
effective executives are more concerned with the interests of shareholders than with their own
(Jensen & Meckling, 1976). From 2010 to 2014, Tulung & Ramdani (2018) investigated the
relationship between the independence of the board of directors, the size of the board of
directors, and the performance of Indonesian regional banks. It discovered an important positive
relationship between the independence of the board of directors and the size of the board of
directors on regional bank performance. These assumptions are based on the premise that
increasing the size of the board of directors would increase oversight, thus increasing the
company's value. In the meantime, the board of directors' independence is critical in making
objective decisions.
Tshipa et al., (2018) used board size, CEO duality, board activity, board transition, board
independence, a board of directors, and a gender diversity council as independent variables in a
study examining the impact of corporate governance on the relevant value of accounting
information in South Africa. The findings show that the size of the board of directors and the
independence of the board of directors have a substantial positive impact on the value relevance,
while the CEO's dual role, the board of directors' activity, and the board of directors' status all
shift. Gender diversity on the board of directors has little effect on the company's relevant value.
These results show that a larger board of directors provides more diversity in expertise and
experience, which leads to profitable efficiency, and that having more independent directors on
the board will improve oversight and therefore the company's relevant value. Uribe-Bohorquez
et al., (2018) conducted a similar analysis, but this one focuses on the relationship between the
board of directors' independence and the relevance values. The size of the company, power, size
of the board, board meetings, and gender diversity of the board are used as autonomous and
moderating variables in the sense of ownership. The size of the company, leverage, size of the
board, board meetings, and gender diversity of the board are used as control variables. Finding a
substantial positive outcome between the independence of the board of directors and the
relevance value of the company would increase objectivity and oversight, accompanied by an
increase in the relevance value of the company.
With the independent variables of board independence, board size, and voluntary disclosure
index, Krismiaji & Kusumadewi (2019) investigated the impact of the board's characteristics and
voluntary disclosure on the relevant valuation of the firm. The findings of this study show that
the board of directors' independence, board size, and the voluntary disclosure index all have a
significant positive impact on the company's relevant value. Voluntary transparency can improve
shareholders' ability to anticipate the value of their shares in the future, increasing the company's
relevant value. Board members with adequate independence can influence board decision-
making. On the other hand, Ayodeji & Okunade (2019) looked at the impact of board
independence on the financial performance of banking companies in Nigeria and Canada from
2008 to 2017, using board independence and audit committee independence as independent
variables. He discovered a significant positive relationship between the board of directors'
independence, the audit committee's independence, and the company's relevance value. Based on
assumptions that will enhance oversight and have a more objective perspective, the board of
directors' and audit committee's independence will boost the company's financial results. From
the statement above, we concluded the hypothesis as below:

H2 : Board independence has significant positive impact on value relevance

The number of board meetings in a year is known as board activity (Harvey Pamburai et al.,
2015). Since there are costs associated with board meetings, such as management time, travel
expenses, and director meeting costs, the relationship between the frequency of board meetings
and the related statistics is not clear. However, there is also the benefit of more time for
discussion, plan definition, and management monitoring (Vafeas, 1999). Several previous studies
have found a significant positive relationship between board of director activity and relevant
values. Techan Demeke (2016) looked at the relationship between corporate governance and
firm efficiency in the Ethiopian insurance industry. According to the research board meetings
have a substantial positive effect on firm results. The number of board meetings can suggest that
shareholders are actively engaged in management decisions. High owner interest in management
decisions may help a company perform better because it could be difficult for management to
make a decision that benefits him at the detriment of the owners who are watching him closely.
Al-Daoud et al., (2016) focused their research on the effect of meeting frequency on the relevant
value of the company, which was also examined by companies listed on the Amman Stock
Exchange in the industrial and services sectors from 2009 to 2016. Board meetings, leverage,
total assets, big four audits, and board size are the independent variables used. According to the
analysis results board meetings are strongly and favorably linked to the company's relevant
value, with more meetings generating more value for the company. More meetings suggest a
greater capacity for directors to track their participation, and wider discussions lead to better
decisions, thus increasing the company's related value, according to the empirical evidence from
this report. On the other hand, Shittu et al., (2016) examined the relationship between the board
of directors' characteristics and the earnings per share of Islamic banks in Malaysia. The size of
the board of directors, the bank's sharia supervisory board, and board meetings were used as
independent variables. It discovered a significant positive relationship between board size, board
meetings, and earnings per share, as well as a significant negative relationship between the
supervisory board of sharia in banks and earnings per share. The results are consistent with
agency theory, which describes the relationship between the principal (capital provider) and the
agent (management). Theory aimed at providing solutions to the principal and agent's problems.
Eluyela et al., (2018) investigated the impact of board meeting frequency on the relevant
valuation of Nigerian banks. The frequency of board of directors meetings was used as the
independent variable, and the size of the board of directors and the size of the organization were
used as the control variables. The study's findings revealed a strong positive correlation between
board of directors meetings and the company's relevance value. These results back up the
agency's hypothesis, which states that as boards meet more often, their ability to track, counsel,
study, and build a disciplined environment improves, allowing them to achieve their financial
targets and optimize shareholder capital. In addition, the frequency of board meetings may be
used to evaluate the efficiency of the board. Mandala (2019) also conducted a study on the board
of directors' activities in relation to the company's financial success. From 2006 to 2015, the
research is based on a business in Kenya. The study's findings showed that the board's activity is
operationalized, as the number of board meetings has a direct effect on the company's financial
results. Furthermore, the findings reveal that there is an optimal number of board meetings with a
statistically significant effect on a company's financial performance, namely 11 to 15 board
meetings per year, to maximize financial performance. From the statement above, we concluded
the hypothesis as below:

H3 : Board activity has significant positive impact on value relevance

Evidence of a direct relationship between the company's relevant values and the board's gender
diversity is still elusive. Several recent studies have looked into this empirical problem, but no
clear findings have been found (Chapple & Humphrey, 2014). Gender should not be an issue for
the roles of the directors because the directors may have a positive impact on the company's
success if analyzed from the agency's theory (Nielsen & Huse, 2010). Gender diversity on the
board of directors has been shown to have a substantial positive impact on the company's
relevant value in many previous studies. Taljaard et al., (2015) focused their analysis on the
correlation between gender diversity and company share price results. Gender diversity, ethnic
diversity, and age diversity were used as independent variables. The results revealed a major
positive relationship between the board of directors' diversity and stock price success. Increasing
diversity encourages self-sufficiency and decreases organization issues. The board's external
network is also extended as a result of the increased diversity, allowing various stakeholders'
needs to be met while reducing dependency on strategic capital. The combination of different
skills and experiences is correlated with improved value relevance as human resources increase.
Agyemang-Mintah & Hannu (2017) investigated the potential of female directors to increase the
value of a company. The gender diversity dummy variable of the board of directors was used as
the independent variable, with a value of one if there are women on the board and zero if there
are none, and the control variables were growth, leverage, company size, four major audits,
double registration, industrial sector, and year. The findings revealed a strong positive
relationship between the board of directors' gender diversity and the company's value. This study
validates the resource dependence hypothesis, which argues that gender diversity enhances
decision-making and helps companies better integrate with external environments and resources,
resulting in improved financial efficiency. These advantages incur because women can bring a
range of attributes, backgrounds, and goals to the board, resulting in a stronger evaluation of the
business's complexities, which enhances the company's profitability and corporate governance
efficiency. On the other hand, Owen & Temesvary (2018) published a study on the relationship
between board gender diversity and US bank performance from 1999 until 2015. Using gender
diversity, board characteristics and bank characteristics as independent variable. The findings
indicate that when a certain degree of gender equity is met, female participation has a positive
impact. Furthermore, this beneficial impact is only seen in banks with higher funding. Our
finding revealed that maintaining voluntary gender balance on bank boards would add benefit, as
long as the banks are well capitalized.
Green & Homroy (2018) studied the relationship between female director, board committees and
firm financial performance of largest European firms from 2004 until 2015. Using board
characteristics and director characteristics as independent variable. The findings show that there
is a significant positive relationship between proportion of female on board and firm financial
performance, implying that having a female director on the board would bring more viewpoints
and resources to the board, thus improving the company's financial performance. On the other
hand, Valls Martínez & Cruz Rambaud (2019) focused their study on the relationship between
the percentage of woman on board and firm financial performance in the Spanish firms that
listed on the Madrid Stock Exchange from 2003 until 2017. Moreover, they also investigated the
effect of a mandatory statute on female representation on corporate boards. The gender diversity
on business boards is the independent variable, which will be represented by three proxy
variables: the percentage of women on the board, the Blau index, and the Shannon index. They
regard firm size, revenues, the volatility of the IBEX35 index, and other proxies for the firm's
sector as control variables. The findings suggest that including more women on boards of
directors has a positive effect. This result is based on assumption that different viewpoints are
introduced from heterogeneous communities as a consequence of different abilities and
backgrounds that lead to the increases of firm market value. From the statement above, we
concluded the hypothesis as below:

H4 : Board gender diversity has significant positive impact on value relevance

The change in the board of directors is seen by shareholders as a classic weakness in corporate
governance. In his view, isolating non-executive directors from the market discipline reduces the
liability of directors (Bebchuk & Cohen, 2005). Changes in board positions, on the other hand,
are seen as a tool for preserving board cohesion by proponents (Duru et al., 2013). Cohen &
Wang (2013) examined the correlation between changes in the board of directors' position and
the company's valuation. The study is based on a natural experiment involving a Delaware
Chancery Court decision that allows shareholders to circumvent the council's shifting provisions
against the transfer and reversal of Delaware Supreme Court decisions. This natural experiment
helps us to see how market participants interpret the average impact of a board shift on the
company's valuation to the affected companies. Specifically, this study uses three ways to
compare the returns of the companies most affected by the Delaware Chancellor's court decision
with those of companies that were not affected by the verdict. We discovered evidence that
supports market participants' perceptions that changes in the board of directors result in a
decrease in the overall value of affected companies. These results provide support for the
ongoing political controversy over board of director changes.
Duru et al., (2013) investigated the connection between changes in the board of directors and the
company's valuation. The value of a company is positively associated with the existence of an
alternate board of directors. Furthermore, as opacity increases, companies with alternate boards
of directors invest more in development and research than companies with unitary boards. On the
other hand, Cremers et al., (2017) investigated the connection between changes in the board of
directors and the company's relevant value. A change in the board of directors' status was used as
the independent variable. The study's findings reveal a major positive association between
changes in the board of directors and values essential to companies that engage in innovation and
place a premium on relationships with stakeholders. This indicates that changing the board of
directors helps certain businesses generate value by binding them to long-term ventures and
unique investment partnerships with their stakeholders.
Daines et al., (2017) conducted research on the relationship between the manager's behavior, the
transition in the board of directors and firm value. The findings indicate that board changes can
be beneficial in companies early in their life cycles, when managers face high levels of
knowledge asymmetry. Changing board positions in these businesses stimulates beneficial
investment and creativity while reducing earnings control. Croci & Croci (2018) investigate the
board's characteristics, including size, composition, leadership, shifts in board roles, profession,
and diversity. The literature on flirtation offers clarification, but not a universal solution.
Although smaller boards typically improve a company's valuation, there is no optimal size for all
businesses. Independence leads to further board oversight and, in general, higher value, but
insiders can also aid. Separating the CEO and chairman is always desirable, but for certain
businesses, the benefit of merging roles and changing board positions adds value. From the
statement above, we concluded the hypothesis as below:
H5 : Staggered board has significant positive impact on value relevance

Larger boards have more expertise, skills, and experience than smaller boards, resulting in more
tools available for sharing, making peer views more viable (Vandewaerde et al., 2011).
Similarly, Van Den Berghe & Levrau (2004) argue that increasing the number of directors helps
the board to attract a diverse range of viewpoints on company policy and reduces the CEO's
influence. However, the increased costs of inefficient communication and decision-making
associated with larger boards can outweigh the benefits (John & Senbet, 1998). The external
environment, on the other hand, is one of the aspects of the resource dependence theory
suggested by Pfeffer (1972), which explains that the external environment, such as the CEO's
network and director interlock, has a positive impact on the company's value. You don't have to
look any further than the daily paper or the evening news to see how the CEO's credibility affects
shareholder value. The CEO's credibility plays an important role in deciding how stakeholders
judge the business, whether by stock sales, crisis response, or the development of the best talent
pool in the industry (Gaines-Ross, 2000). The use of the CEO's reputation as a moderating
variable between corporate governance and the company's relevance value can help to improve
the relationship between the two. We concluded the hypothesis as below:

H6 : The reputation of the CEO can moderate the relationship between the board size and the
value relevance of the financial statements.

To reduce agency costs, especially for companies listed on national or international stock
exchanges, an independent board of directors is required. Companies must follow good corporate
governance standards, such as having a board of directors comprised of competent and
knowledgeable independent directors, being accountable to shareholders, and having financial
statements that are transparent (Kakabadse et al., 2010). According to the resource dependency
theory, external environmental factors may affect a company's long-term viability (Pfeffer,
1972). A reduction in transaction costs associated with the company's external partnerships may
be one of the benefits of connecting businesses to external environmental factors. Having an
independent director with experience or legal expertise, for example, will lower the transaction
costs of a regulatory agency. These directors' knowledge of the government contracting process,
relevant contact persons, and the impact of proposed legislation will actually lower transaction
costs between regulators and firms, giving the company a cost advantage over its rivals (Hillman
et al., 2000).
Musteen et al., (2010), on the other hand, based their research on the relationship between the
characteristics of the board of directors and the company's reputation, finding that the higher the
proportion of independent boards of directors, the better the company's reputation. A
unidirectional relationship was also found between the reputation of the CEO and the reputation
of the company, as stated by Love et al., (2017). As a result, the authors believe that the CEO's
reputation will help to reinforce the connection between corporate governance and the company's
relevant value. We concluded the hypothesis as below:

H7 : The reputation of the CEO can moderate the relationship between the board independence
and the value relevance of the financial statements.
The intensity of the activity of the board of directors is a relevant attribute for the value in
increasing the effectiveness of the board of directors. The number of board meetings was
commonly used as an indicator of board involvement in previous studies. The activities of the
board help to improve the oversight of the manager's decision-making (Brick & Chidambaran,
2010). As a result, decreasing the number of board meetings will decrease agency expenses and
be seen as a symbol of good business conduct in the marketplace (Bravo et al., 2015). In his
theory, Pfeffer (1972) claims that a company's long-term viability is determined by external
factors, and that the CEO's job is to bind the company to its external environment. The CEO's
reputation is a measure of the company's long-term stability, but the higher the CEO's reputation,
the more likely he or she will be absent from board meetings (Karuna, 2011). As a consequence,
the authors use the CEO's reputation as a moderating variable in the relationship between
corporate governance and the related valuation of the company. We concluded the hypothesis as
below:

H8 : The reputation of the CEO can moderate the relationship between the board activity and
the value relevance of the financial statements.

The theory of resource dependency and agency theory have both been used to explain the
position of women on boards of directors in the past. Women directors are encouraged to
improve the board of directors' independence because women can ask questions and have fresh
perspectives that directors with more conventional backgrounds cannot (Carter et al., 2003). By
balancing the diversity of company directors with the diversity of potential clients and staff,
greater diversity promotes a broader understanding of the industry. Furthermore, diversity boosts
imagination and innovation (Francoeur et al., 2008). According to the resource dependence
principle, gender diversity can be used to obtain access to resources that are vital to a company's
success (Pfeffer, 1972). The inclusion of women on the board, on the other hand, will help a
company's reputation (Bravo et al., 2015). This one-way relationship is identical to the one that
exists between the company's reputation and the CEO's reputation (Weng & Chen, 2017). As a
result, the authors include the CEO's reputation as a moderating element in the relationship
between corporate governance and the company's relevant value, in the hopes of bolstering the
relationship. We concluded the hypothesis as below:

H9 : The reputation of the CEO can moderate the relationship between the board gender
diversity and the value relevance of the financial statements.

The change in the board of directors is seen by shareholders as a classic weakness in corporate
governance. They claim that they shield non-executive directors from market discipline and
restrict directors' liability (Bebchuk & Cohen, 2005). Changes in board positions, on the other
hand, are seen as a tool for preserving board cohesion by proponents (Duru et al., 2013). In an
opportunistic business, such as one with a change in board positions that needs good treatment
from shareholders to create a good reputation, the manager tends to take root. Companies with a
unitary council, on the other hand, do not need a reputation mechanism (Jiraporn & Chintrakarn,
2009). The CEO's job, according to resource dependency theory, is to link the business to
external factors that trigger instability and external dependence for survival (Pfeffer, 1972). In
the resource-dependent role, the CEO provides the business with resources such as knowledge,
expertise, access to key stakeholders (for example, suppliers, customers, and public
policymakers), and legitimacy (Hillman et al., 2000), as well as the CEO's personal reputation,
which has a positive impact on the company's valuation (Weng & Chen, 2017). As a result, the
authors include the CEO's reputation as a moderating element in the relationship between
corporate governance and the company's relevant value, in the hopes of bolstering the
relationship. We concluded the hypothesis as below:

H10 : The reputation of the CEO can moderate the relationship between the staggered board
and the value relevance of the financial statements.

RESEARCH METHODOLOGY
Sample selection
The object of this research is focused on banking companies listed on Indonesia Stock Exchange
(BEI) for the period 2016 till 2019. The research focused on the banking sector is based on the
consideration of how important the reputation of a bank CEO or president director is to the
credibility of the bank, which affects the value of the company in the banking sector (Laurens,
2012), and considering that CEO awards in Indonesia are mostly given to companies in the
banking sector, so bank CEOs receive special attention in Indonesia, as evidenced by the award
"Bankers of the year award", "Top National Bankers" and "The Most Admired CEO". On the
other hand, corporate governance in the banking sector received special attention after the
monetary crisis, as companies in the banking sector dominate the economies of developing
countries such as Indonesia and play a role in providing financial support to companies in
countries called underdeveloped stock trade and are the center for mobilizing government
savings (Tulung & Ramdani, 2018). Purposive sampling method is used in this study which
mean the sample drawn must meet several criteria based on the objectives of the study.
Measurement of Value Relevance
If the numbers in accounting have a predictable relationship with the market value of the equity,
they are known as relevant values (Barth et al., 2001). The stock value of a business may indicate
the quality of a financial report (Omokhudu & Ibadin, 2015). As a result, share price, earnings
per share, and net asset value per share are used to calculate the value relevance in this analysis.
Share price is taken from the share price in company i in year t when the earnings per share are
net profit after tax but before the abnormal item is divided by the number of shares in company i
in year t and the total assets minus the total liabilities of company i in year t divided by the
number of shares outstanding yields the book value net per share.
Measurement of Board Size
Academics, regulators, and market investors have all paid close attention to the topic of board
size as a corporate governance tool in recent years (Johl et al., 2015). The number of members of
the company's board of directors with a nominal scale as an indicator of the board's size is
referred to as the board's size. According to Tshipa et al., (2018), the method for determining the
size of the board of directors is as follows.

Board Size = The total number of directors on the board of directors

Measurement of Board Independence
According to the agency's theory, having an independent board of directors on a company's
board will help to control management on behalf of shareholders by bringing independent votes
into the board room, which will eliminate a known conflict of interest between shareholders and
the company's management (Kakabadse et al., 2010). Shareholders trust independent directors to
represent them and help reduce agency issues (Fuzi et al., 2016). The independence of the board
of directors is measured on a nominal scale. According to Tshipa et al., (2018), the board of
directors' independence formula is as follows.

Board Independence = Directors Independent/Total Directors on the Board

Measurement of Board Activity

The number of board meetings during the year is used to describe the board's activity. The
frequency of board meetings is one way to gauge board operation. The frequency of meeting bias
is one criterion for determining whether a board of directors is active or inactive (Harvey
Pamburai et al., 2015). The board of directors' operation is calculated on a nominal scale. The
following is the formula for the board of directors' activity, according to Tshipa et al., (2018).

Board Activity = The number of board meetings during a year

Measurement of Board Gender Diversity

The larger the number of women on the board of directors, the higher the company's economic
value Reguera-Alvarado et al., (2017). The council's gender diversity is calculated on a nominal
scale. According to Tshipa et al., (2018) the formula for gender diversity on the board of
directors is as follows.

Board Gender Diversity = Women Directors/Total Directors on the

Board

Measurement of Staggered Board

One of the most controversial issues in academic and business circles is the influence of shifting
board positions on corporate value. Around 60% of US companies have introduced strong anti-
acquisition provisions (ATPs), which enable them to influence the board of directors annual
elections (Duru et al., 2013). The staggered board in this study is a dummy variable that receives
number one if the board of directors rotates every three years, zero if it is not given.
Measurement of CEO Reputation
The CEO's reputation is one of the external environmental factors, and Pfeffer (1972) indicates
that the company's survival is dependent on the external environment in his theory of resource
dependence. As a result, the authors believe that the CEO's reputation will help reinforce the
connection between corporate governance and the company's relevant value. Since the evaluation
of these ideas requires personal characteristics, determining a metric for the CEO's credibility is
difficult. Several studies have attempted to identify these proxies, including:
 Press exposure: CEOs are seen as influential leaders by the media, as shown by the extensive
press coverage (Park & Berger, 2004).
 CEO Award: Winners of the CEO Award go on to become superstar CEOs with a strong
reputation in the business world (Shi et al., 2017).
 CEO's mandate: this is the length of time or amount of years that the CEO has been in his
current position; a longer period for the CEO indicates that the company's board of directors
has traditionally tended to keep this executive role (Bernstein et al., 2016).
 Outsiders vs. insiders: Outsider CEOs are more likely to adopt new company techniques and
policies than insider CEOs (Zhang & Rajagopalan, 2010).
 Age of the CEO: it is a proxy for the market uncertainty about the CEO's credibility (Serfling,
2014).
People assess others based on subjective factors such as skills and education, as well as objective
physical characteristics such as sex and age. These characteristics can affect the CEO's public
profile (Fetscherin, 2015). Participation in a professional body demonstrates the CEO's integrity,
which requires his or her experience (Men, 2012), which is one of the criteria used to evaluate
the CEO's reputation. The length of the CEO's mandate affects market expectations of his or her
abilities; the longer the CEO's mandate, the more chances for the board to evaluate the CEO's
abilities. Since the CEO survived the previous retention or dismissal, a longer period for him
means a higher ranking of his expertise on the board (Jian & Lee, 2011). The CEO's previous
experience with organizational restructuring, as well as his previous role in the business, have
helped to establish his credibility (Ranft et al., 2006). According to Niap & Taylor (2012), the
CEO's reputation index, which is shown in the table below, is used to measure the CEO's
reputation.
Table 1
CEO Reputation Index
Index Description
CEO qualification
1 Diploma or lower
2 Bachelor’s degree
3 Post graduate qualification
Participation in a professional body
1 None
 2 Membership of one professional body
3 Membership of more than one professional bodies
CEO tenure
1 Not more than one year
2 Not more than three years
3 More than three years
CEO experience
1 had previous management experience, but not as a
company's president director or CEO
2 had previous management experience, as a company's
president director or CEO of a non-listed company
3 had previous management experience, as a company's
president director or CEO of a listed company
Source: Niap & Taylor (2012)

RESULTS AND DISCUSSION

Table 1
Descriptive Statistic
Variable N Minimum Maximum Mean Std. Deviation
Share Price 160 50,00000 33.425,00000 2.077,97000 4.322,50300
Earnings Per Share 160 -485,00000 1.159,00000 106,87020 221,31334
Net Asset Value Per Share 160 -16.539,31000 9.177,69000 1.083,72310 2.840,83061
Board Size 160 3,00000 14,00000 6,58000 2,65500
Board Independence 160 0,00000 1.00000 0,06230 0,16044
Board Activity 160 4,00000 282,00000 31,07000 30,74400
Board Gender Diversity 160 0,00000 0,75000 0,18070 0,18430
CEO Reputation Index 160 5,00000 12,00000 7,31250 1,40613
Source : Author’s Calculation (2021).
Table 2
Descriptive Statistic
Frequency Percentage
Staggered Board 1 = The board of directors 142 88,8
rotates every three years
0 = The board of directors 18 11,3
does not rotate every three
years
Total 160 100,0
Source : Author’s Calculation (2021).
Regression result on the relationship between corporate governance and value relevance
with CEO reputation as moderating variable
Table 3
Reggresion Result to Value Relevance

Original
No. IV   DV P value Criteria Description
Sample
Value 0,537 0,000
H1 Board Size → < 0.05 Significant
Relevance
Board Value 0,036 0,611 Not
H2 → < 0.05
Independence Relevance Significant

Value 0,211 0,148 Not

H3 Board Activity → < 0.05
Relevance Significant

Board Gender Value -0,062 0,342 Not

H4 → < 0.05
Diversity Relevance Significant

Value -0,233 0,265 Not

H5 Staggered Board → < 0.05
Relevance Significant

Board Size*CEO Value -0,220 0,103 Not

H6 → < 0.05
Reputation Relevance Significant

Board Not
→ Value -0,156 0,257
H7 Independence*CE < 0.05 Significant
Relevance
O Reputation
Board Not
→ Value -0,041 0,786
H8 Activity*CEO < 0.05 Significant
Relevance
Reputation
Board Gender Not
→ Value 0,054 0,456
H9 Diversity*CEO < 0.05 Significant
Relevance
Reputation
Staggered Not
→ Value 0,217 0,434
H10 Board*CEO < 0.05 Significant
Relevance
Reputation
Source : Author’s Calculation (2021).
From the calculation above we can summary that the direct effect of corporate governance to
value relevance are not significant. Board size empirically affect the value relevance with
significant effect. Other than that emprically data show that board independence, board activity,
board gender diversity, staggered board and CEO reputation do not have any significant effect
toward value relevance.
Further Discussion on the effect of Corporate Governance and CEO Reputation toward
Value Relevance
With a t-value of 8.176 and a p-value of 0.00, the findings of this analysis show that the size of
the board of directors has a major positive impact on the company's relevance value. This
demonstrates that the bigger the board of directors, the wider and more diverse the expertise and
viewpoints in decision-making would be, resulting in an improvement in the company's relevant
value (Tshipa et al., 2018). The findings of this study support Jensen & Meckling (1976) agency
theory, which argues that managers have vested agendas and do not behave in the best interests
of shareholders. According to the agency's theory, a larger board of directors would increase
oversight, which would lead to improved company performance (Kalsie & Shrivastav, 2016).
These findings support the hypothesis and are in line with studies by Almujamed & Alfraih
(2020); Krismiaji & Surifah (2020); Krismiaji & Kusumadewi (2019); Tshipa et al., (2018);
Tulung & Ramdani (2018).
While the independence of the board of directors has a positive impact on the relevance value of
the company, the findings showed that the second hypothesis was rejected, with a t statistic of
0.509 and a p value of 0.611. This is likely to occur because independent directors in developed
countries are appointed primarily to comply with the provisions and legislation, as well as to
legitimize and promote business operations, including future connections and contracts (Hassan
et al., 2017). According to this study, the presence of an independent director would have little
impact on the company's valuation if the independent director is selected outside of the
established criteria (Fiador, 2013). The fit and proper test conducted by OJK as a prerequisite for
the appointment of the board of directors is based on Indonesia Bank regulations no
12/23/PBI/2010 does not have the purpose of raising the company's relevance value. The results
of this study are in accordance with the research by Fiador (2013); Makarov et al., (2015); Tham
Kah Marn & Romuald (2012); Wintoki et al., (2012); Zabri et al., (2016).
The results showed rejection of the third hypothesis, although the activity of the board of
directors had a positive effect on the relevant value, but it was not significant with a value of the
t statistic of 1.448 and p value of 0.148. The findings indicate that the frequency of board
meetings has no impact on the relevant valuation of Indonesian banking companies. This is
possibly due to the fact that the number of board meetings is simply a proxy for action, since it
provides no indication of the work performed during the meeting (Ponnu & Karthigeyan, 2010).
This study also shows that the provisions of Article 15 POJK 73 / POJK.05 / 2016 and the Board
of Directors' Job Guidelines, which mandate directors to meet at least once a month, or twelve
times a year, do not serve the purpose of increasing the company's value. The findings of this
study agree with Abdallah Mohammad Qadorah (2018); Bawaneh (2020); Chaudhary & Gakhar
(2018); Gavrea & Stegerean (2012); Ponnu & Karthigeyan (2010); Akram Naseem et al., (2017).
The findings indicate that reporting gender diversity on the board of directors has no effect on
the company's relevant value, with a t-value of 0.951 and a p-value of 0.342 indicating a negative
association between the study variables, rejecting the fourth hypothesis. In an uncertain
environment like Indonesia, companies are advised to choose directors who have the ability,
compared to several directors, to increase the company's relevant value (Wellalage & Locke,
2013). Diversity can also generate friction and have a detrimental impact on the efficacy of board
communication (Marimuthu & Kolandaisamy, 2009). Gender diversity, on the other hand, should
be measured not only from an economic standpoint, but also from a social and ethical standpoint
(Reguera-Alvarado et al., 2017). The findings of this study agree with Chandani et al., (2018);
Jhunjhunwala & Mishra (2012); Wellalage & Locke (2013).
The findings indicated a negative association between changes in the board of directors' status
and the company's relevant value, but it was not significant with a t-statistic of 1,116 and a p of
0.265. The fifth theory is then rejected. This study is consistent with the stewardship theory
suggested by Davis et al., (1997), which does not endorse a shift in board positions and views
such a change as a systemic impediment to the board of directors. Since changes in the position
of the board of directors will increase the value of a company that is not transparent while
decreasing the value of a company that is transparent (Duru et al., 2013), the relationship
between staggered board and the value relevance of the company shows negative results.
Banking companies in Indonesia appear to be transparent because they have been specifically
supervised by OJK. The findings of this study are consistent with Amihud et al., (2018); Tshipa
et al., (2018).
With a t-value of 1.634 and a p-value of 0.103, the findings showed that the CEO's reputation
cannot moderate the relationship between the size of the board of directors and the value
relevance of the financial statements. The sixth theory is then rejected. The presence or absence
of a well-known CEO has no effect on the relationship between the size of the board of directors
and the company's relevant value. This finding contradicts Pfeffer (1972) theory of resource
dependence, which states that a company's survival is contingent on external resources given by
the board of directors, such as the CEO's reputation. Regardless of the president director or
CEO's reputation, having a good board of directors can add considerable value to a company.
The CEO's reputation changes the direction of the relation between board size and value
relevance from positive to negative. This is most likely due to a major positive relationship
between the CEO's image and his or her compensation (Fedaseyeu et al., 2018), which increases
the company's costs and results in the company's irrelevance (Nguyen et al., 2016).
The role of the CEO's reputation in moderating the relationship between the board of directors'
independence and the financial statements' relevant value was investigated in this study. The
findings indicate that the CEO's reputation cannot moderate the relationship between the board
of directors' independence and the company's value relevance. The seventh hypothesis is then
rejected. Based on the t-value of 1,135 and p-value of 0.257, Indonesian banking companies with
independent directors and reputational CEO does not imply a high value for the company. The
CEO's reputation change the relationship between the board of directors' independence and the
company value relevance from positive to negative. This is likely to occur because the CEO's
reputation will minimize the board of directors' independence (Graham et al., 2020), influencing
decision-making in circumstances where the decision affects the company's relevant value.
The t-value of 0.271 and the p-value of 0.786 in this study indicate that the CEO's reputation
does not moderate the relationship between the activities of the board of directors and the
relevant value of the company's financial statements. Indonesian banks with frequent board
meetings and well-known CEOs or CEOs do not necessarily reflect a high level of relevant
value. This is most likely because the reputable CEO is more focused on running a one-man
show, so the meeting is more about achieving administrative targets than reaching a degree of
understanding.
The ability of the CEO's reputation to moderate the relationship between the board's gender
diversity and the company's relevant values is explored in this study. With a t-value of 0.747 p
and a value of 0.456, the findings show that the CEO's reputation cannot moderate the
relationship between the gender diversity of the board of directors and the relevant value of the
company. As a result, it can be concluded that gender diversity on renowned boards of directors
and CEOs in Indonesian banking companies does not mean that the business has high relevant
value. This study supports Orozco et al., (2018) view that a company's credibility has little
bearing on its financial performance, and it contradicts the principle of resource dependency,
which notes that businesses rely on external resources to survive.
With a t-statistic of 0.783 and a p-value of 0.434, the findings showed that the CEO's reputation
was unable to moderate the relationship between changes in the board of directors and the
relevant value. Changes in the board of directors' and reputable CEO's roles do not imply a high
relevant value for the company. The CEO's reputation change the relationship between staggered
board and value relevance from positive to negative. This may be due to the fact that having a
reputable CEO who is judged on indications of a long term as CEO does not support a change in
board positions (Dangé, 2017).
CONCLUSIONS
This study analyzes the effect of corporate governance and CEO’s reputation on relevance value.
CEO’s reputation is also added to the research model as a moderating variable to be tested in
explaining the effect of corporate governance on value relevance. The results found that board
size was empirically proven to have a significant positive effect on value relevance. CEO’s
reputation does not have a moderating effect on the influence of the corporate governance
towards value relevance.
This research is expected to provide benefits for the management of Indonesian banking
companies by increasing the number of company directors to increase the company's relevant
value. The recruitment of independent directors, multiple directors and changes in the position of
the board of directors are not necessary because they do not affect the relevant value of the
company. The company can reduce the number of board meetings which indirectly reduces the
costs incurred with board meetings that do not in fact affect the relevant value of the company.
When recruiting a CEO banking company, there is no need to pay attention to the reputation of
the CEO, which apparently does not affect the relevant value of the company.
The limitation of this study is we only use CEO's qualifications, association of professional
institutions, CEO's tenure and CEO's experience as measures of the CEO's reputation, which is
only a fraction of a CEO's overall reputation. The following research can also try to use a more
detailed indicator of reputation such as the CEO's social media, the article produced by the CEO
and the dual status of CEO.

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